On 26 January 2024, the Society of Construction Law hosted its Annual Construction Law Review. Our Senior Partner, Vatsala Ratnasabapathy, was invited to be one of two speakers at the event. She provided the audience with a comprehensive breakdown and review of major construction law decisions in 2023.

Vatsala Ratnasabapathy covered eight cases at length, including both adjudication and arbitration cases. As the head of Zain & Co.’s Construction, Engineering and Arbitration practice, she was eminently qualified to provide expert insight into these topics.

Encorp Iskandar Development Sdn Bhd v Konsortium Ipmines Merz Sdn Bhd & Another Appeal

[2023] 9 CLJ 677

This case involved a novated agreement that sought to replace the original main contractor for a development project with the Defendant in this matter. It became a live issue for the Court of Appeal’s consideration because the original contract was entered into before the introduction of the Construction Industry Payment and Adjudication Act 2012 (”CIPAA”), while the novated contract to replace the main contractor was signed after the introduction of CIPAA.

The Court of Appeal found that the wording of the novated agreement was clear - the parties’ intention in entering the contract was merely to substitute the parties with the Defendant. As such, the Court deemed that the Defendant had entered the agreement in place of the original main contractor, and therefore the agreement involving the Defendant was deemed to have been entered into pre-CIPAA. Thus, the adjudicator did not have jurisdiction to hear the matter, and the adjudicator’s decision was unenforceable.

Furthermore, the Court of Appeal also discussed the definition of “working days” as set out in section 12(2)(a) of CIPAA. It held that the definition in section 4 of the Act should apply, such that it should be calculated based on the location where the site is located, not the adjudicator’s office.

This was relevant as the project site was located in Johor, while the adjudicator was located in Kuala Lumpur. Due to differences in their respective calendars, the Kuala Lumpur deadline for the adjudication decision would have been one day after the Johor deadline. As the adjudicator delivered his decision in accordance with the Kuala Lumpur deadline, it was found to have run afoul of section 12(3) and was thus unenforceable.

Jumsar (Sarawak) Sdn Bhd v Robin Dockyard & Engineering Sdn Bhd

[2023] MLJU 413 (“Jumsar”)

This case involved a contractor for a fountain project and a subcontractor who was hired to provide a floating pontoon. A dispute arose when the contractor alleged that the floating pontoon did not include a protection screen as had been agreed, and that the pontoon had been delivered with defects.

In the adjudication for this matter, the adjudicator relied, in part, on a Malaysian Audit Report which he used to obtain the date of issue of a Certificate of Practical Completion (”CPC”). The CPC was not mentioned or raised by either party during the adjudication proceedings.

The Court found that the adjudicator had breached the rules of natural justice by not providing the parties an opportunity to be heard on the issue of the CPC. The Court noted that, while adjudicators had the power to make their own inquiries under section 25(i), they could not source additional facts and evidence without giving the parties an opportunity to be heard.

AZ v BY

[2023] EWHC 2388 (TCC)

A case from the UK’s Technology and Construction Court, it discusses the use of “without prejudice” material in adjudication proceedings at length. The Court considered that, for reasons of public policy, the use of “without prejudice” materials would be generally inadmissible in adjudication proceedings.

However, the Court noted that an exception exists when the issue in dispute is whether the “without prejudice” letters resulted in an agreed settlement. The correspondence would in that case be acceptable, as it contains the offer and/or acceptance forming a contract. In this case, the Court found that the documents produced by the Plaintiff did not fall within the exception.

The Court then discussed whether the use of inadmissible material should render the adjudication decision unenforceable. The Court decided that as the material introduced was so prejudicial and adverse to the central issues in dispute, it would fail the “apparent bias” test, and as such would render the adjudicator’s decision unenforceable.

Pali PTP Sdn Bhd v Bond M&E Sdn Bhd

[2023] 6 MLJ 176 (“Pali’s case”)

The meaning of “adjudicated amount” in section 30 of CIPAA has caused some consternation to lawyers in recent years, as the High Courts of Shah Alam and Kuala Lumpur have taken differing approaches to this issue.

Our Senior Partner provided a rundown of the earlier cases on this issue, whereupon the High Court of Shah Alam took the view that the “adjudicated amount” claimable by a subcontractor against a principal should include only the principal claim sum, and not interest or costs; the High Court of Kuala Lumpur, in contrast, had taken the approach that this “adjudicated amount” should include the principal claim sum and interest, but not costs.

In Pali’s case, the Court of Appeal has now handed down a definitive judgment that “adjudicated amount” should be taken to include the principal claim sum, interest, and costs. The Court arrived at this conclusion after a thorough examination of the legislative intent behind the introduction of CIPAA.

The case also stressed that the onus to provide evidence of non-payment is borne by the principal, and not the subcontractor. The subcontractor merely has to assert that they have not been paid.

Zedelta Sdn Bhd v Mayland Supreme Sdn Bhd

[2023] 10 MLJ 95

A High Court case that was decided only a month after Pali’s case, the Court followed the decision in Pali and awarded the Plaintiff the principal sum, interest and costs.

Concrete Empire Sdn Bhd v Turnpike Synergy Sdn Bhd

[2023] MLJU 2452

A novel case involving an interpleader application on a section 30 CIPAA motion. The case, which on its face was a standard section 30 CIPAA claim by a subcontractor against the principal, became significantly more complex when the main contractor filed a Judicial Management application.

The Court examined the relationship between section 30 of CIPAA, and sections 410 and 426 of the Companies Act 2016. Following the rule of generalibus specialia derogant, the Court found that the sections of the Companies Act must be read subject to section 30 of CIPAA. This section creates a separate and distinct statutory obligation on the principal, and takes precedence over the provisions of the Companies Act.

As speaker, Vatsala Ratnasabapathy also discussed the potential impacts this ruling would have on principals and judicial management applications generally.

JSB v ACSB

[2024] 1 CLJ 382

An interesting case whereby one of the parties of an arbitration refused to pay their portion of a further deposit on the arbitrator’s fees. The Court of Appeal firmly found that such behaviour was intolerable and would constitute a breach of an arbitration agreement, thereby entitling the other party to file their case in court.

The Court also found that the filing of an application for strike out based on the Rules of Court 2012, would constitute “taking any other step” under section 10 of the Arbitration Act 2005. As a consequence, a party will be taken to have irreversibly forfeited their right to make an application for stay under section 10 of the Arbitration Act. It does not matter if the Court should find in favour of the application - the mere filing of the application is taken to be an irrevocable submission to the court’s jurisdiction.

SQA Builders Sdn Bhd v Luxor Holdings Sdn Bhd & Anor and other cases

[2023] 10 MLJ 204 HC

This case discusses the repeal of section 42 of the Arbitration Act, and whether it should have retrospective or prospective effect.

It was the Court’s ruling that the repeal should have prospective effect, as the repeal involved the demise of a substantive right. In the absence of clear language by the legislature to that effect, the repeal could not have retrospective effect.

The Court further found that section 42 of the Act must be read in conjunction with section 23 of the Act, such that the right to refer questions of law to the High Court vests upon the commencement of arbitral proceedings, not at the time an arbitral award is made.

Our Senior Partner also provided a summary of prior cases discussing this issue, highlighting the varied views of the High Court on the topic. As no authoritative superior court judgment has been published, this question of law remains ambiguous due to the differing approaches of the High Courts.

Final Thoughts

The talk was followed by a lively and engaging panel discussion. The panel of distinguished practitioners included Thayanathan Baskaran, Sanjay Mohan, Joon Liang Foo and Ir. Harbans Singh KS, to discuss the developments in construction law over the past year.

Acknowledgments: Zain & Co. wish to thank the Society of Construction Law for inviting our partner, Vatsala Ratnasabapathy to share her insights and our paralegal, Cindy Lee Sze Wern, for her diligent assistance in preparing this summary.